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BtM and Goodwill
voyager1967
08-23-2007, 10:11 PM | Post #205279
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I am not sure if this topic has been touched already. Most Fama-French value-tilting strategies rely on BtM (book to market) ratios to identify value stocks. There are of course many criticisms of "book value" as a measure of value, but one particularly egregious item is Goodwill. For companies that have grown by acquisition it is often a substantial % of the total book. For example, it maybe 30% for typical large regional bank. So it seems counterintuitive that the more a copmpany pays for acquisitions the more likely it is to be a value stock. Of course I realize that FF results are based on statistical regressions, but would it not be more meaningful to look at tangible book value?
Originally posted in thread: 60155
Topics
bank
book value
Gene Fama
market
Ratios
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